Fenger Pointing

Becky Fenger | April 9, 2009

Betting on Congress, literally

Washington correspondent John Harwood credited President Barack Obama's handling of the G-20 Summit last week for the encouraging stock market numbers that coincided. He's wrong. Far more likely a cause is the fact that Congress split for spring break, officially dubbed "a district work period."

One of the more interesting presentations I attended last fall during National Review's Caribbean Cruise was given by Eric T. Singer of Congressional Effect Management, a mutual fund. The bottom line: Congress destroys wealth. As reported in Barron's magazine, a weekly financial publication, researchers found that the market does remarkably better (times four) each day that Congress is on vacation!

This correlation of stock market returns to whether Congress is in or out of session attracted Singer, as it should anyone concerned with Wall Street. He charted market returns from Jan. 1, 1965 through Dec. 31, 2007. After digesting the figures, he formed Congressional Effect Management (congressionaleffect.com).

This method is not for the lazy investor who just parks his money. One must be prepared to time the buying and selling of stocks according to Congress' work calendar. When they are out of session, one should invest in Standard & Poor's Index futures and Spiders. When they are in session, one should convert to interest-bearing cash equivalents. But the rewards appear to be substantial. It's about time there is at least one sweet note in all the sour chords struck by our esteemed leaders.

As we are aware, when government picks up on an industry, nothing good can come of it. House Speaker Nancy Pelosi changes CAFE requirements, and companies weaken. Hillary's Health Care Task Force in 1993 led to a loss of billions in profits in a year and a half. Government can prop up an industry, but – as in the case of ethanol – can't turn lead into gold.

Additionally, on days when legislative policy initiatives are in the news, the market drops. President Bill Clinton's legacy is one of a good market during his tenure. Singer states that Clinton was blessed with impeachment proceedings, because the huge distraction halted policy changes from being undertaken.

President Obama, on the other hand, will give the market a migraine with his higher taxes, higher and new tariffs, universal health care, rampant unionization and 401k "reform".

Singer's research showed that the annualized rate of return on investment was 8.7 percent during years of a split government versus 7.8 percent under a unified government. Since Democrats currently control both the executive branch and the legislative branch, that's more bad news for us.

I doubt I would have the time and inclination to follow the Congressional Effect system of investing, but the concept is fascinating. I am content to invest in gun manufacturers, since Attorney General Eric Holder and Obama won't be content until they can make certain only criminals will have guns. As pointed out by gun use expert John R. Lott, Jr., every public shooting that he has studied – like the tragedy in Binghamton, New York – occurred in "gun free zones," public places where guns are banned and citizens cannot carry guns for their protection. Gun free zones are a magnet for these attacks, since perpetrators know citizens are defenseless. Yet, the recent round of shooting will undoubtedly lead to calls for more gun control. That's why I'll keep buying stock in Ruger and Smith & Wesson.